Question

ACC 221 CHAPTER 4 HOMEWORK PROBLEM

Sun Valley Resort opened for business on June 1 with eight air-conditioned units. After being in operation for one quarter, Sun Valley is putting together its financial statements. Its trial balance before adjustment on August 31 is presented here.

Sun Valley Resort Trial Balance As of August 31, 2017
	Debit	Credit
Cash	$24,600
Prepaid Insurance	5,400
Supplies	4,300
Land	40,000
Buildings	132,000
Equipment	36,000
Accounts Payable		$6,500
Unearned Rent Revenue		6,800
Mortgage Payable		120,000
Common Stock		100,000
Dividends	5,000
Rent Revenue		80,000
Salaries and Wages Expense	53,000
Utilities Expense	9,400
Maintenance and Repairs Expense	3,600
Totals	$313,300	$313,300

Other data:

On June 1, the company purchased a 12-month insurance policy.

A count of supplies on August 31 shows $700 of supplies on hand.

Unearned rent of $5,000 was earned prior to August 31.

Salaries of $600 were unpaid at August 31.

Rentals of $1,600 were due from tenants at August 31.

The 15-year mortgage was taken out on June 1, payable annually with an interest rate of 9% per year.

Instructions:

Prepare the adjusting entries on August 31 for the 3-month period June 1 through August 31.

Prepare a ledger using T accounts. Enter the trial balance amounts and post the adjusting entries.

Prepare an income statement, statement of retained earnings and classified balance sheet for the end of the quarter, August 31.

Prepare closing entries for the appropriate accounts so the company is ready to begin the next quarter.

Answer 1

Adjusting Journal Entries
Transaction	Account Title	Debit	Credit
31-Aug	Insurance Expenses	$      1,350.00
	Prepaid Insurance		$    1,350.00
	(Insurance for 3 Months Expired)
31-Aug	Supplies Expense	$      3,600.00
	Supplies		$    3,600.00
	(supplies Consumed)
31-Aug	Unearned Rent Revenue	$      5,000.00
	Rent Revenue		$    5,000.00
	(Revenue Earned)
31-Aug	Salaries and wages Expense	$          600.00
	Salaries Payable		$        600.00
	(salaries payable at the end of August)
31-Aug	Accounts Receivable	$      1,600.00
	Rent Revenue		$    1,600.00
	(rent Receivable)
31-Aug	Interest Expense	$      2,700.00
	Interest Payable		$    2,700.00
	(Interest Payable on Mortgage)
		$    14,850.00	$ 14,850.00

Prepaid Insurance
1-Jun	Opening Balance	5400	31-Aug	Insurance expense	$    1,350.00
				Closing balance	$    4,050.00
		$      5,400.00			$    5,400.00

Supplies
1-Jun	Opening Balance	4300	31-Aug	Supplies Expenses	$    3,600.00
			31-Aug	Closing balance	$        700.00
		$     4,300.00			$    4,300.00

Unearned Rent Revenue
	Rent Revenue	$      5,000.00	1-Jun	Opening Balance	$    6,800.00
31-Aug	Closing balance	$      1,800.00
		$      6,800.00			$    6,800.00

Rent Revenue
31-Aug	Closing balance	$    86,600.00	1-Jun	Opening Balance	$ 80,000.00
			31-Aug	Unearned Rent Revenue	$    5,000.00
			31-Aug	Accounts Receivable	$    1,600.00
		$    86,600.00			$ 86,600.00

Salaries and wages Expense
1-Jun	Opening Balance	$    53,000.00	31-Aug	Closing balance	$ 53,600.00
31-Aug	Salaries Payable	$          600.00
		$    53,600.00			$ 53,600.00

Sun Valley Resort
Income Statement
as on 31st August
Rent Revenue	$    86,600.00
Expenses
Supplies Expenses	$      3,600.00
Salaries and Wages Expenses	$    53,600.00
Insurance Expenses	$      1,350.00
Utilities Expenses	$      9,400.00
Maintenance and Repair Expenses	$      3,600.00
Interest Expense	$      2,700.00
Total Expenses	$    74,250.00
Net Income	$    12,350.00

Sun Valley Resort
Balance Sheet
As at 31st August
Assets
Current Assets
Cash	$    24,600.00
Accounts Receivables	$      1,600.00
Supplies	$          700.00
Prepaid Insurance	$      4,050.00
Total Current assets	$    30,950.00
Equipment	$    36,000.00
Building	$ 132,000.00
Land	$    40,000.00
Total assets	$ 238,950.00
Liabilities and Shareholder's Fund
Liabilities
Current Liabilities
Accounts Payable	$      6,500.00
Unearned rent revenue	$      1,800.00
Salaries Payable	$          600.00
Interest Payable	$      2,700.00
Total Current Liabilities	$    11,000.00
Long term Liabilities	$ 120,000.00
Shareholder's Fund
Common Stock	$ 100,000.00
Retained Earning	$      7,350.00
Total Liabilities and Shareholder's Fund	$ 238,350.00

Statement of Retained Earning
Beginning Balance	$                   -
Profits During the Year	$    12,350.00
Less: Drawings during the year	$      5,000.00
Closing balance of Retained Earnings	$      7,350.00